Everything you need to know about Canadian vacation leave
If Canadian talent don’t use their vacation, they don’t lose it.
In fact, “use it or lose it” policies are illegal in Canada - and it’s not a new development, either. The very first vacation legislation came into effect back in 1944, making vacations with pay a legal right for employees.
But here’s a slight twist: You, as the employer, are responsible for ensuring your talent takes the minimum amount of vacation (as laid out by federal and provincial laws) every year.
Though, this is just one aspect of Canadian vacation legislation.
Every Canadian province has their own rules and policies governing vacations.
However, some industries (like air transport, the postal service, telecommunications, chartered banks, etc.) fall under the federal Canada Labour Code.
In general, federal and provincial vacation legislation will cover areas such as:
- Earning vacation and entitlement
- Minimum vacation time
- Minimum vacation pay
- What earnings are "vacationable"
- Employer's rights to schedule vacation time
- Employee's rights to forfeit vacation time
- Timing of paying vacation pay
- Obligations of vacation pay when employment is terminated
- Requirements to track/record vacation
- Types of employment that are exempt
Here, we’ll cover the major aspects of vacation legislation so that you can be compliant and avoid surprises no matter where in Canada your talent may be.
A closer look at vacation time and vacation pay
Every province in Canada has legislation specifically addressing vacation time and vacation pay. This covers the minimum amount of vacation time that an employee earns and is entitled to. Working with an Employer of Record Canada ensures compliance with these provincial regulations while managing your workforce efficiently.
For instance, most provinces legislate a minimum two week vacation per year entitlement for new employees. However, Saskatchewan, along with professions that fall under the Canada Labour code (i.e., banking and air transportation) require a minimum three weeks’ vacation.
Plus, every province, except the Yukon, increases the minimum vacation entitlement after so many years of service.
It’s also not uncommon for laws to state that the employee earns the vacation in the first year of employment and is entitled to take the time off in the year following.
How is vacation entitlement calculated?
Vacation entitlement may be on a calendar year basis or employment year basis, as defined by company policy. And if the employee doesn't take their vacation time, they are still entitled to vacation pay. But in most cases, vacation pay out in lieu of time is either not permitted or highly discouraged.
The percentage of vacation pay accrued each pay depends on how much vacation is given. For instance:
- Two weeks vacation is equivalent to 4% of earnings
- Three weeks vacation is equivalent to 6%
- Four weeks vacation is equivalent to 8%
Some employers are now offering “unlimited vacation” as a perk.
But be careful! Although talent can take as much off as they want, the minimum amount of vacation pay still needs to be accrued. Employers also still need to track vacation days to ensure their employees are taking the minimum legislated time off.
Vacation pay upon termination
Upon termination of employment, any outstanding vacation is owed to the employee.
One notable exception is British Columbia, where an employee terminated within five days of hire is not entitled to any vacation pay.
Calculating vacation pay on termination can be handled efficiently by ensuring your records of vacation time taken are up to date, all “vacationable” earnings are included, and you have a good accrual system in place.
What are “vacationable” earnings?
Each province defines which earnings are "vacationable.” In other words, earnings that are to be used in calculating vacation pay entitlement.
There are several types of earnings other than regular pay that are subject to vacation dollar calculations.
- One of the most common types is commissions. All across Canada and in nearly every circumstance, any commissions paid are considered “vacationable.”
- A less common “vacationable” earning - mainly in Manitoba and Québec - are employer-controlled tips. These are tips that are part of a service charge, or tip-pooling system, and then paid to employees. Controlled tips are considered part of an employee’s total compensation, which means CPP (Canada Pension Plan) contributions and EI (Employment Insurance) premiums must be deducted.
- In Québec, employees must declare any tips they receive along with their controlled tips to their employer.
Employer of Record services from Bridgewater TI
With Employer of Record (EOR) services from Bridgewater TI, there’s no need for you to learn and navigate ever changing provincial and federal vacation requirements or track time off of your Canadian talent.
Our team of payroll compliance professionals (PCP) have an extensive knowledge of all requirements and will track all vacation related items for you, including vacation pay, CPP, EI and income tax deductions.
Focus on growing your business and attract top Canadian talent and let us handle the rest.
Ready to get started? Talk to us now.
The information provided is for general informational purposes only and does not constitute tax advice. Please consult with a qualified tax advisor for advice tailored to your specific situation.
